ANSWER & ADDRESS REQUIREMENTS COMPLETELY
Resource: Principles of Managerial Finance
Prepare responses to the following problems from the text:
Ch. 5: P5–3, P5–4
Read the Assessing the Goal of Sports Products, Inc. case study in attachment.
Write a 800-word paper in which you respond to the questions at the end of the case study (see attachment).
Format your paper consistent with APA guidelines.
See P5-3 & P5-4 Below:
P5–3 Risk preferences Sharon Smith, the financial manager for Barnett Corporation,
wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm
earns 12% on its investments, which have a risk index of 6%. The expected return
and expected risk of the investments are as follows:
a. If Sharon were risk-indifferent, which investments would she select?
b. If she were risk-averse, which investments would she select? Why?
c. If she were risk-seeking, which investments would she select? Why?
d. Given the traditional risk preference behavior exhibited by financial managers,
which investment would be preferred? Why?
P5–4 Risk analysis Solar Designs is considering an investment in an expanded product
line. Two possible types of expansion are being considered. After investigating
the possible outcomes, the company made the estimates shown in the following
a. Determine the range of the rates of return for each of the two projects.
b. Which project is less risky? Why?
c. If you were making the investment decision, which one would you choose? Why?
What does this imply about your feelings toward risk?
d. Assume that expansion B’s most likely outcome is 21% per year and that all
other facts remain the same. Does this change your answer to part c? Why?